I know that I may be an outlier on this, but I am worried about a possible unintended consequence of the proposed economic stimulus package now in the works in Washington.
The push behind the stimulus legislation is a fear that the economy is slowing. But, the cure may end up being worse than the ailment.
Throughout 2006 and 2007 there were signs that inflation might heat in our economy up for the first time in the past quarter century. We faced a continuing tight job market, with both low unemployment combined with a significant shortage of available skilled workers being reported by small employers. Add to this the significant inflationary pressures from both the energy and healthcare sectors and we have the potential of a witches brew of inflation.
Call me callous, but I felt some relief at the news of a slow down in the economy. Let me be clear -- I was not rooting for a recession (defined as two quarters of negative economic growth). But just like a growing business, our economy needed some time to "adjust" to the incredible sustained period of very robust growth.
The economic stimulus, if it works as hoped for by its proponents, might simply re-ignite the inflationary embers that are still glowing. The inflationary pressures from labor, energy and healthcare will again push prices higher. We could then see the economy enter into an inflationary cycle that will not break until we eventually enter a deep and painful recession.
With prudent attention to interest rates and a commitment to the use of cross-the-board tax cuts (or better yet, true tax reform to meet the needs of our entrepreneurial economy), we can minimize the slow down and ease the economy back into sustainable long-term growth.
The Tax Foundation has additional thoughts on the proposed stimulus at their website.
